Findings cast doubt on need for tighter regulations that EU is discussing

Leveraged buyouts do not increase redundancies or lead to the introduction of more insecure forms of work, according to new research.

The findings contradict the widely held view that leveraged buyouts – where investors use loans to buy under-performing companies they can then turn around and sell on – regularly lead to rapid job cuts and greater use of agency staff, fixed-term contracts and external contractors.

Particular concerns had been raised that buyouts involving private equity funds, management buy-ins, short-term deals or high levels of debt could lead to a so-called ‘buy, strip and flip’ approach.

Yet researchers at Warwick Business School, Cass Business School, and Imperial College found jobs were no less secure, even when a leveraged buyout featured a ‘perfect storm’ of all these factors.

“However, the theory that these buyouts work only in favour of investors, not staff and other stakeholders, does not hold water.

“In some instances leveraged buyouts may well have led to downsizing and job insecurity, but our analysis suggests these cases are far from the norm.”

The team analysed data on 1,572 workplaces from the Centre for Management Buy-out Research's database of UK buyouts and the UK Government’s 2011 Workplace Employment Relations Study.

What do leveraged buyouts mean for employees?

They found employees actually felt more secure in their jobs in ‘perfect storm’ leveraged buyouts than other firms. There were no redundancies at any of these companies and they were less likely to employ agency staff to do work previously done by permanent employees.

“There may be significant restructuring to address wasteful costs, but our evidence suggests this does not lead to heightened job insecurity.”

The findings cast doubt on the need for tighter regulation of leveraged buyouts, which are due to be discussed by the European Parliament later this year.

Mike Wright, of Imperial College, said: “To set leveraged buyouts up as barbarians at the gates risks constraining activity that could well be the difference between survival and failure for struggling firms. The latter would, of course, be the most devastating in terms of job losses.”